Diana Farrell is the President and CEO of the JPMorgan Chase Institute, which publishes data analyses and insights that leverage the firm’s proprietary transaction data. Previously, Diana was the Deputy Director of the National Economic Council, as well as Global Head of the McKinsey Center for Government and the McKinsey Global Institute. The opinions expressed are her own.
The deadline to file your 2017 taxes is just a week away. But if you’re one of the millions of Americans — roughly four in ten households — who filed back in February, you probably couldn’t wait to get your hands on your expected refund.
And there’s a good chance you put that refund toward a visit to the doctor.
That’s according to new research by the JPMorgan Chase Institute, which evaluated when Americans in different income and demographic groups file their taxes.
Americans who file their taxes early are more likely to receive a larger tax refund. Early filers were also more likely to spend a larger portion of their refund on health care.
In fact, American families increase their health care spending by 60% in the very week they receive a tax refund. And those who received their refunds in February increased their health care spending over the following 76 days by 38%, compared with a 22% increase for those who received refunds in March and an 11% increase in April or May.
While some high-deductible health plans encourage early-year spending, JPMorgan found that deductibles aren’t the motivating force behind this surge.
Instead, among the earliest filers, 64% of their health care spending went to services they had been putting off, including dental visits, hospital visits and in-person doctor appointments.
What does this mean? It’s increasingly clear that families are treating their tax refunds as a zero-interest savings vehicle, the funds of which they’re using for important and sometimes crucial expenses like health care.
That’s problematic for Americans’ financial health, because the IRS does not currently give taxpayers control over the timing of their refund payments, outside of choosing when to file your annual refund between January and Tax Day in April. This means it can be challenging or unrealistic to only schedule payments or purchases around your tax refund every spring.
It also poses problems for Americans’ physical health, because those who rely on this cash infusion to afford health care are likely to delay care.
Generally speaking, young people under the age of 35 and those whose take-home pay is less than $ 36,000 are more likely to be early filers because they have a greater need for this cash infusion.
Another reason for filing early could be that low-income families are more likely to receive refundable tax credits, such as the Earned Income Tax Credit, money that is not available except through a tax refund. Across all income and age groups, though, people who are owed a larger refund are more likely to file early.
Given the link between tax refunds and health care spending, policymakers and employers should consider making changes that would allow consumers to access funds throughout the year. Policymakers might consider offering periodic tax refund payments — perhaps quarterly payments so that families wouldn’t have to defer care until tax season.
Another solution is to make the timing of these payments even more flexible and frequent for those who require urgent health care. This could include an option to apply for emergency funds taken out of your upcoming refund, or an option to file at a different time of year and receive a refund based on year-to-date income.
By fixing one of the largest cash flow events to happen between mid-February and mid-May every year, we’re virtually guaranteeing that some Americans will have to defer care.
Finally, we should encourage employers to offer alternative savings vehicles, like an employer-based sidecar account. This account would share many of the same features of a tax refund, but give consumers more direct control over when they access funds.
These could include built-in commitments and “set-it-and-forget-it” transparency, which would enable consumers the option of a one-time payroll election that recurs with every paycheck, locking them into an annual savings choice similar to other employer-sponsored benefits.
By better understanding the connection between health care spending and tax season, we can help more families manage their finances to ensure they’re getting health care when they need it, not just when they file to Uncle Sam.